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Tenneco Profit Rises 40% - Analyst Blog

Tenneco Inc.
(
TEN
) posted its second-quarter 2012 profit of $70 million or $1.14 per
share, up 40% from $50 million or 81 cents in the comparable
quarter of 2011 (excluding special items). With this, it surpassed
the Zacks Consensus Estimate by 17 cents.

On a reported basis, earnings were $87 million, or $1.42 per
share, compared with $50 million, or 81 cents, in the second
quarter of 2011.

The company's revenues for the quarter went up marginally to $1.92
billion from $1.89 billion in the year-ago quarter. However, it was
lower than the Zacks Consensus Estimate of $2.04 billion.

The increase in revenues was attributable to a rise in production
of light vehicles in North America and China and higher commercial
vehicle revenues around the world. Excluding substrate sales and
currency impact, revenues increased 9% to $1.59 billion. Revenues
from original equipment (OE) commercial and specialty vehicles
boosted 36% to $226 million in the reported quarter.

Adjusted EBIT improved 21% to $139 million from the year-ago level.
The year-over-year improvement was driven by strong operating
performance on light vehicle production volumes and swelled
commercial vehicle revenues.

Segment Results

Revenues from North American OE rose 16% to $790 million due to
higher revenues from emission control business. Aftermarket
revenues grew 7% to $206 million. Adjusted EBIT increased 36.5% to
$86 million from $63 million a year ago. The hike in EBIT was
driven by a strong operational performance on higher volumes,
mainly in the OE emissions control business, including the
commercial vehicle segment.

Revenues from European OE went down 10% to $481 million. The
decrease in revenues was due to a 13% fall in revenues from the
ride control business and a 9% decline in revenues from the
emission control business. The European aftermarket depicted a 24%
fall in revenues to $87 million, due to a 32% decrease in revenues
from emission control business.

Revenues from South America and India slid 16% to $142 million.
Adjusted EBIT from Europe, South America and India was $34 million
versus $38 million in the corresponding quarter of 2011.

Revenues from Asia Pacific (Asia and Australia) escalated 9% to
$214 million. Revenues were positively affected by a 14% increase
in revenues from Asia. Adjusted EBIT from Asia Pacific was $19
million compared with $14 million a year ago. The growth in EBIT
was due to higher sales volume of new light vehicles in China and
operating benefits in Australia.

Financial Position

Tenneco had cash and cash equivalents of $181 million as of June
30, 2012, a decline from $214 million as of December 31, 2011. Net
debt increased marginally to $1.18 billion as of June 30, 2012 from
$1.13 billion as of December 31, 2011. Tenneco's leverage ratio -
net debt to adjusted EBITDA including non-controlling interests -
reduced to 1.9X from 2.0X a year ago.

For the first six months of 2012, the company had cash inflow from
operating activities of $1 million compared with a cash outflow of
$36 million in the year-ago quarter. Capital expenditures increased
to $62 million from $47 million a year ago. The increase in capital
expenditure was owing to the launch of new light and commercial
vehicles in North America and Europe.

Share Repurchase

In January 2012, the Board of Directors of Tenneco authorized share
repurchase of 600,000 shares during the twelve months period. In
the second quarter of 2012 the company repurchased 600,000 shares
for $18 million, as announced by it earlier.

Outlook

Tenneco anticipates growth in revenues, margins and record earnings
in 2012. The company expects revenues to be positively affected by
a strong growth in North American vehicle production. According to
IHS Inc.
(
IHS
), light vehicle production is expected to go up in most of the
company's markets except Europe.

Our Take

Tenneco, based in Lake Forest, Illinois, is a leading manufacturer
and supplier of emission control, ride control systems, and systems
for the automotive original equipment manufacturers (OEMs) and the
aftermarket. The company competes with
Meritor Inc.
(
MTOR
). Currently, it retains a Zacks #3 Rank, which translates
into a short-term (1 to 3 months) Hold rating.

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